Innovation: Get Incentives Right

Feb 08-2021   

Innovation is a systemic issue, for it involves funding, policies, and talents, among others. In a recent interview with Caixin, Prof. Yao Yang talked about the relationship between education, government and innovation. He’s Dean of the NSD.

On the commonly held view that China’s education system is too rigid, Prof Yao said that Chinese students do waste too much time preparing for the university entrance exam. But Chinese universities are by no means worse than their foreign counterparts; in fact, he believed that what’s taught at Peking University is superior to that at 90% of American higher institutions. The biggest problem lies in the innovation environment that Chinese university graduates step into and have to grapple with.

A good system that offers enough incentive will naturally bring out the genius in people. And therein the most important lever is the IPR. China still has a long way to go to catch up with leading countries in IPR protection.

Government funding should only be limited to areas with clear technological path and secure market presence. In other words, these areas are less about innovation and more about funding. Microchips are a good example. The sort of 0-to-1 innovation must be off-limits to the government, for soft budget constraints hardly and rarely hold people accountable. Governments at all levels have vied to set up funds dedicated to innovation. Though some follow market principles, they will have to battle with various non-market distractions in implementation.